APA Group / CK Infrastructure Holdings: Australian Politics, National Security and Chinese Influence

Publication Date: October 25, 2018

Research Report Overview

Australia is in the midst of a highly politicised debate over China’s influence in its politics and businesses, and Cheung Kong Infrastructure’s (CKI) bid for gas infrastructure company APA has found itself caught in the middle. The debate so far has primarily been carried on by high-profile conservatives who criticise the deal on grounds that CKI is a stalking horse for Chinese influence and interests on Australian soil. Others warn of competition and national security issues.
The Australian Competition & Consumer Commission (ACCC) has approved the takeover, leaving national security approval by Treasurer Josh Frydenberg as the only remaining hurdle. While Frydenberg is responsible for ultimate signoff, recommendation will come from the Foreign Investment Review Board (FIRB), the body responsible for assessing national security issues related to foreign acquirers, and the Critical Infrastructure Centre (CIC). The FIRB approved CKI’s $7bn acquisition of utility Duet in 2017 but rejected its bid for electricity distributor Ausgrid in 2016, reinforcing its reputation for being difficult to second-guess.
In this report, we explore the deal’s perceived threat to Australian national security and the likely assessments by the FIRB and the CIC, both conditions to deal consummation. We look at precedents that could indicate the FIRB’s decision and place our findings in the context of the current political debate surrounding the deal. Finally, we include an APA break price analysis and offer our thoughts on risk arbitrage trading considerations.